Two Years After Private Equity Carve-Out, What’s Next for YP?

Two years ago, AT&T shed its local marketing business, selling a majority stake of its print and digital yellow pages assets to Cerberus Capital Management for $950 million in cash and debt. Today, YP, the fruit of the acquisition, has become a critical channel for some of the largest technology companies to reach the small business market, but the company is still working to regain its role as a leading consumer brand in a market shared by many of the technology companies with which it partners.

It’s already been a busy year for the yellow pages spin-off. In January, the company acquired Sense Networks, a mobile ad tech firm, in the hopes of luring brand advertisers into its mobile business. Weeks later it hired a new CMO to revamp the YP’s consumer brand. Then, last month, the company announced a new deal to resell a stripped-down version of reviews site’s branded listings product to YP’s small business clients.

But, the company’s competitive set has also grown as well. GoDaddy, the once-lowbrow domain register, has revitalized its brand with cleaned-up messaging and a strategic focus on servicing the small business market. Meanwhile Yodle, one of YPs most successful competitors, appears to be gearing up for an IPO, adding more capital to the fight over small businesses marketing spending.

David Krantz, chief executive at YP, remains unfazed. During a recent conversation with Street Fight, Krantz said the company is well ahead of where its private equity parent expected it would be two years ago, and discussed how the ex-yellow pages planned reprise its role as a leading consumer brand.

It’s been two years since Cerberus Capital closed on the acquisition. Give us a sense of YPs relationship with the private equity group, and whether a liquidity event [read: IPO] might be on the horizon.
For Cerberus, we were the first investment in one of their new funds. It’s a four-year investment period, and then it’s a multiyear harvest period. That gives us lots of flexibility depending on where we are with the business and how the market matures.

I know what you’re trying to ask, but at the end of the day it’s going to be up to our board to decide when’s the appropriate time to make that decision. We’re owned by a private company, and there’s going to be some sort of liquidity event. But when that happens will be determined by how the business is doing in the markets, and by, ultimately, our board.

With a new CMO, YP has made a renewed push to raise awareness around the company’s consumer app. Given the dominance of Google in search, and the rapid growth of Yelp, how do you see YP competing meaningfully in consumer search over the next decade?
What I want to tell you is I think we already are a pretty big and leading consumer brand, and it is very important to the business. We have to be a successful consumer product. We have 70 million monthly unique visitors, and over half of them are coming from mobile.

But this is an industry where no one player can dominate the consumer side of the business, and so it really becomes how do you make it easy for the small business to access this in one place. The way we look at the business model is that it’s the total reach that we can provide to that set of consumers. Our consumer properties anchor that. That’s what differentiates us from a Yodle or ReachLocal or other players who don’t have traffic. But even Google relies on a big distribution network, because it’s fragmented, and it’s just going to keep fragmenting.

Over the past few months, we’ve seen a number of of well-capitalized businesses start to sell marketing and operations packages to small businesses. How does a consumer search product buoy YPs core, revenue-generating, marketing-services business?
Having consumer traffic and maintaining a strong brand does a couple of things for us. First, it allows us to control our destiny because we can control that traffic. There’s good profitability in having that traffic as the baseline. Today, of the ad value that we generate for our customers, well over half of it is coming from our organic properties.

There are few big anchor tenants. Google’s a big anchor tenant. We’re a big anchor tenant. Sure, Google might be bigger anchor tenant, but we can bring all those properties together with a layer of service and put the right simplified product portfolio that just delivers audience as leads. Then you wrap it with presence, and you wrap it with other types of services, and soon, you become the one-stop shop for that small business to be their marketing partner.

When you take a look at the local search market, where’s the opportunity for YP to flip the table on Google or Yelp?
To start, we want to become much more than just search. We have hundreds of millions of hours’ worth of searches that are going without ad coverage. The reason being that we’re strong in certain geographies and certain categories. However, I have 70 million monthly new users who are doing searches, and it’s been growing at double-digit growth rates. So the gap between [our consumer reach and ad supply] is widening.

We do think there’s a big opportunity in search as it relates to going beyond what we’ve done very well, which is this look-up type function. So we have great data, great search algorithm, but now how do you do more with it? How do you create collections? How do you share them with friends? How do you create a way to see what’s popular, because you see what’s being collected?

In January, YP snapped up Sense Networks in the company’s first acquisition since separating from AT&T. Can we expect more deals to come?
It’s a concerted effort. One of the thrusts of our strategy is that we have access to customers, and we have a massive channel, and while we have hundreds of people developing products, this is a fast=moving market, and there’s lots of new opportunities.

We think there’s great opportunity to find technology and product which somebody’s been working on for several years that customers want, but maybe they’re not going to have the same access to channel and same access to capital to scale up their business. So putting it inside of YP is a way for that technology to scale and for us to go faster.

I live in New York, and there’s still a stack of unused Yellow Pages books sitting in the lobby of my building. When do you think the last book will be printed?
The way I look at it, we might as well let the consumer vote. If the consumer is using the product to find a business, it’s adding value to the consumer and it’s adding value to the advertisers. We’ll keep printing and distributing the book, and we’ll keep placing ads in it. The moment when residents stop using it, we have the ability to turn off on a book-by-book basis.

Unlike a newspaper that’s either on or off, we have twelve hundred different titles. So in the heart of San Francisco, it may be very different than Topeka, Kansas. We’re managing it from a value-creation perspective for our advertisers and from the consumers. From a capital contribution perspective, clearly print as a revenue line is going to decline. It’s in structural decline, and there’s no question about that. It’s a matter of how long is the tail.

Comment:
“Given the dominance of Google in search, and the rapid growth of Yelp, how do you see YP competing meaningfully in consumer search over the next decade?”
YP might want to start by leaping into the new century and calling themselves Yellow Search instead of Yellow Pages for starters! That would be meaningful to consumer search. Duh.

SearcherStephen

Telrific, yp leap into the new century? YP has a billion dollar+ digital footprint and a 3.9% market share of mobile ad marketplace. I think you might need to leap out of your parents basement and look at the facts. While i might seem like a homer for yp, you are definitely biased for this Yellow Search especially when looking at your comment history.

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